TLAW401 Business Law: Examining Essential Elements of a Contract

This business law assignment provides a detailed analysis of the essential elements of a contract, including intention, offer, acceptance, consideration, capacity, and legality. It uses a case study involving Sunita and her uncle, Mr. Property Walla, to illustrate the application of these elements and the doctrine of estoppel. Sunita, relying on her uncle's promise to lease her a shop at a cheaper rate, invested in renovations, only to be later denied the lease. The assignment argues that despite the lack of formal consideration, the doctrine of estoppel applies, preventing Mr. Walla from reneging on his promise due to Sunita's reliance and subsequent financial loss. The conclusion supports Sunita's right to sue for breach of contract, emphasizing the court's role in upholding the principle of estoppel.

Running head: BUSINESS LAW ASSIGNMENT
Business Law Assignment
Name of the Student
Name of the University
Author Note

1BUSINESS LAW ASSIGNMENT
Issue
Sunita had an oral agreement with her uncle regarding leasing his rental shop at a
cheap rate, below the market price. Her uncle, Mr Property Walla promised Sunita to lease
the shop and encouraged her to renovate the place to her liking. She went ahead and spent
$18500 on the renovation, but then her uncle refused to perform the contract and notified
Sunita to vacate.
Rule
The essential elements of a Contract lays down the six requites that makes a contract
valid. The intention of the parties to contract, an offer, an acceptance, a consideration,
capacity to contact and the legality of the contract are the essentials required to enforce a
contract1. Intention of the parties to create a binding contract is the founding stone of any
contract. Such intention must be voluntary and the intention of the parties should not be
influenced by fraudulence, misrepresentation, undue influence or mistake. Contracts entered
into by parties involuntarily are void ab initio. Mostly, a promise of a valid consideration
pertaining to the contract is an evidence of a bona fide intention between the parties2. In
Balfour v Balfour, it was observed that neither of the parties had the intention to enter in to a
contract that is legally binding, therefore the contract was set aside3.
After the intentions are clear between the parties, there must an Offer from one of the
parties to another to proceed with the agreement. An offer is like a proposal made to a person
who is expected to do or not to do something. It can be communicated in any form and to a
particular person, group or to the whole world at large4. If the offeree shows intention to
1 Frey, Martin A. Essentials of contract law. (Cengage Learning, 2015).
2 Knapp, Charles L., Nathan M. Crystal, and Harry G. Prince. Problems in Contract Law: cases and materials.
(Wolters Kluwer Law & Business, 2016).
3 [1919] 2 KB 571.
4 Davis, Gary. "Taylor v. Johnson: Unilateral Mistake in Australian Contract Law." (1985): Monash UL Rev. 11
65.

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amend the terms of the agreement, it implies rejection and such recommendation of the
offeree is to be seen as a counter-offer, which can be rejected or negotiated by the actual
offeror. However, an offer is to be differentiated from an invitation to treat that lacks the
intention of the offeror to accept. In Carlill v Carbolic Smoke Ball Co, the company had
made an offer to pay damages to anyone any contracts influenza even after using their
product. Carlill tried their product, contracted influenza and claimed the damages. The court
held that the company was bound to pay her the compensation as there was an offer made the
company to the world at large5.
After an offer is made, Acceptance of the offeree is the next step to proceed. It is the
statement that legally binds the offeror with the offeree who agrees to such offer. It is to be
remembered that an acceptance needs to be communicated clearly. In Crown v Clarke, it was
held that an offer to provide information to anyone in general can be accepted by anyone fit
to provide such information and the person providing it is considered to be accepting it, hence
such person such be given the award money6.
The offer and acceptance of the agreement majorly depends on Consideration which
is the amount agreed to by the parties to the contract. It is the price offered by the offeror to
which the offeree agrees and later attempts to enforce in case of dispute. It is most generally
in the form of monetary exchange. It however, should not be unlawful or illegal, while it
must be present in every form of contract and without it, a contract is not valid. It comprises
of some interest, right or profit gained by one party for which the other party experiences
depreciation, detriment or loss suffered by another7. It is to be noted that a free promise
which is not supported by a valid consideration is not enforceable in a court of law. In Carlill
v Carbolic Smoke Ball Co the consideration offered by the company depended upon
5 [1892] EWCA Civ 1.
6 [1927] 40 CLR 227.
7 Smits, Jan M., ed. Contract law: a comparative introduction. (Edward Elgar Publishing, 2017).

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contracting influenza even after using the smoke ball manufactured by the company. Anyone
contracting the disease after using the product could claim the price as that was the
consideration of the implied contract8.
The Capacity to enter into contract is one of the major criteria of a valid contract. The
parties to the contract must be capable of entering into the contract and must be above the age
of eighteen, of sound mind and not insolvent. In the case of Gibbons v Wright, it was held
that in a contract, if one among the several parties is not capable of entering into the contract,
then such contract may still stand valid, removing the claim of the incapable party9.
Lastly, the legality of the contract is the factor that marks the validity of a contract,
whether such contract can be enforceable or to be set aside by the court. When the ulterior
motive of a contract suggests breaking the law or to aid an immoral act; or it is contrary to
public policy; or declared illegal by a statute, such contract are void ab initio. In Unfill v
Wright, it was held by the court when a person enters into a contract knowing it to be of an
illegal nature, then such person cannot enforce such contract10.
In a situation where the Consideration is executory, which means it is yet to be
decided or which is not yet exchanged, the agreement becomes voidable on the option of the
party who is yet to receive such consideration. However, the Doctrine of Estoppel stops a
party to rescind a contract on the excuse of lack of intention or no consideration. By way of
the doctrine of estoppel, an aggrieved party can obtain legal remedy in case the other refuses
to perform the contract even if such contract lacks consideration11. The doctrine clearly states
that when a person promises to do or not do a certain act then it is mandatory on his part to do
so, otherwise it amounts to breach of contract. In Central London Property Trust Ltd v High
Trees House Ltd, it was held that a party to the contract cannot break half-rent agreement
8 [1892] EWCA Civ 1.
9 [1954] HCA 17.
10 [1911] 1 KB 506.
11 Frazer, Nicole C. "Reassessing the Doctrine of Judicial Estoppel: The Implications of the Judicial Integrity
Rationale." (2015) Va. L. Rev. 101: 1501.

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even though the contract lacked reasonable amount of consideration as the defendant had
agreed to such agreement initially12. In Waltons Stores v Maher, it was held that bare
promises may be enforced under certain circumstances13. The defendant’s conduct will be
immoral if it is proven that the plaintiff had relied and depended on the promise made by the
defendant and such dependence has made the plaintiff suffer economically. In this case the
plaintiff could not refuse to consider the existence of the contract. Following this case, the
High Court laid down six pre-requisites for promissory estoppel:
 Assumption: the plaintiff assumed the existence of a legal relationship with the
defendant.
 Responsibility: the defendant made the plaintiff adopt such assumption.
 Reliance and dependence: the plaintiff acts or omits relying the assumption induced
by the defendant.
 Loss: it will be detrimental to the plaintiff if such assumption is not executed by the
defendant.
 Inaction: the defendant has not carried out the assumption which has caused detriment
to the plaintiff14.
Application
In the given problem, Sunita was promised by her uncle, Mr Property Walla that he
would lease out his shop to her on a cheaper rate. The shop required a thorough renovation
that involved an investment of a lot of money. When Sunita asked for the lease document, Mr
Property Walla assured her to go ahead and make the necessary changes per her requirement.
Sunita spent $18500 to renovate the shop, when her uncle directed her to vacate the shop as
12 [1947] KB 130.
13 [1988] HCA 7.
14 Harris, Daniel. Equitable estoppel in the 21st Century: Revisiting the lessons of Waltons Stores V Maher.
Diss. (Murdoch University, 2014).

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he intends to lease it out to another person at a higher rate. Here, the consideration amount
was yet to be paid to Mr Walla, yet there was a valid agreement between the two parties that
comprised of all the essentials of a valid contract. Sunita had put her reliance and dependence
on the promise made by her uncle to lease out the shop at a cheaper rate and therefore she
invested such a huge amount in renovating the place. Even though the parties had not
exchanged any sum of money in the form of consideration, yet the promise of Mr Walla
made her spend her entire savings as a student. Additionally, the direction of Mr Walla to
move ahead with the renovation work and Sunita’s action to spend the huge amount on
renovation clears the doubt that there was an express intention from both the parties to enter
into the contract voluntarily. There was a clear offer and acceptance from both the parties and
both of them had the capacity to contract. Lastly, the contract was completely lawful in
nature. Therefore, remedies for breach of contract can resorted to by Sunita. The doctrine of
estoppel can be applied in this case and stop the Mr Walla from refusing to lease out the
place.
Conclusion
Sunita had depend on her uncle’s promise that eventually made her suffer a heavy
loss. Therefore, applying the doctrine of estoppel, Sunita can sue her uncle on the ground of
breach of contract citing the rule of estoppel and the court would stop Mr Property Walla
from refusing to lease out the shop to Sunita.

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Bibliography:
Balfour v Balfour [1919] 2 KB 571
Carlill v Carbolic Smoke Ball Company [1892] EWCA Civ 1
Central London Property Trust Ltd v High Trees House Ltd [1947] KB 130
Crown v Clarke [1927] 40 CLR 227
Davis, Gary. "Taylor v. Johnson: Unilateral Mistake in Australian Contract Law."
(1985): Monash UL Rev. 11 65
Frazer, Nicole C. "Reassessing the Doctrine of Judicial Estoppel: The Implications of the
Judicial Integrity Rationale." (2015) Va. L. Rev. 101: 1501
Frey, Martin A. Essentials of contract law. (Cengage Learning, 2015)
Gibbons v Wright [1954] HCA 17
Harris, Daniel. Equitable estoppel in the 21st Century: Revisiting the lessons of Waltons
Stores V Maher. Diss. (Murdoch University, 2014)
Knapp, Charles L., Nathan M. Crystal, and Harry G. Prince. Problems in Contract Law:
cases and materials. (Wolters Kluwer Law & Business, 2016)
Smits, Jan M., ed. Contract law: a comparative introduction. (Edward Elgar Publishing,
2017)
Upfill v Wright [1911] 1 KB 506
Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7